Startup of the Day: Lithuanian fintech SME Finance

Established in 2016, SME Finance is building an AI-driven financial technology platform which takes quick lending decisions that allow to bring the best financing solutions for small and medium enterprises in the Baltics and larger EU region. The startup has already provided more than €1.3 billion in working capital to over 2,600 growing businesses across Europe. SME Finance has ambitious plans for 2023 — in particular, to expand its presence into the Netherlands, Spain, and Germany.

In the Startup of the Day column, CEO of SME Finance Mindaugas Mikalajūnas shares more details about the startup’s idea, its product, and future plans.

“The Startup of the Day column on AIN.Capital is dedicated to tech projects from all sectors that originated from the CEE countries. If you would like to introduce your project, please fill in the questionnaire.”

Tell us about your startup. How does it work?

SME Finance is reinventing growth financing for small- and medium-sized enterprises. It has already provided more than €1.3 billion in working capital to over 2,600 growing businesses across Europe. SME Finance is a market leader in B2B financing in the Baltics, with more than 50% of the market in Lithuania, the one of the largest financial services technology platform for SMEs, and rapidly increasing market share in Latvia, Estonia, and Finland.

SME Finance’s team provides a better, faster, and fairer alternative to traditional banks or VC equity funding, even for companies with short trading histories. Loan decisions are delivered through an AI-driven financing platform, which provides accurate, unprejudiced lending decisions within just one hour.

Our mission is simple — to provide financing services faster, simpler and cheaper.

How did you come up with the startup’s idea? What was the reason/motivation behind it?

In my banking career, I was frustrated with the lack of opportunities afforded by the major institutions to SMEs, the backbone of modern economies. SME Finance was started to provide growing businesses with a single platform for all their finance needs. Small and medium enterprises represent over 90% of companies in Lithuania, a similar number across Europe. At the same time, SMEs generate about 40% of GDP in emerging economies.

Despite this, traditional banks, which represent the majority of the market in Baltic countries, are not interested in SMEs. In fact, most SMEs are rejected from traditional banks because of the lack of information, data, or because of the higher risks. So there is a huge opportunity to fulfill the needs of SMEs. That is the niche SME Finance is in, and the mission we have set our eyes on. We are focusing on making financing products and services more accessible and making these services totally digital.

A key differentiator for us is the creation of a single platform with a variety of financing products for SMEs. We operate only online, via website or mobile app, providing daily financing services with additional opportunities for every business.

How long did it take to reach the prototype or MVP? What did you encounter?

We started with only one product — invoice financing, and we offered our services only in Lithuania. Essentially, we knew that we wanted to start financing activity, and we chose invoice financing because it‘s a scalable business, and you can also easily see the risks of clients. Moreover, we saw the niche which wasn’t taken back then as the traditional banks didn‘t want to provide factoring services. Though in Lithuania we had around 90% of SMEs that were interested in this service, but it was really difficult to get it from the traditional banks.

The main breakthrough for us was COVID. That was the time we grew and started to offer multiple lending products. Before COVID, we had 80% revenue based on factoring and 20% revenue based on short loans. Now we have the opposite situation. For most businesses, those turbulent times brought a lot of challenges, but we managed to see opportunities. We spotted governmental programs for businesses in Lithuania which started offering loan guarantees for businesses affected by COVID, and we seized the chance to participate in the programs as well as started offering more financing solutions.

The journey of becoming a fintech wasn‘t easy, and it took almost 5 years to become a fully digital alternative lender. Our biggest challenge was to set up the team for tech development. Our desire to make the customer’s journey fully digital. We are trying to build an ecosystem and manage to reach customers through integrations/ partners, our plan and goal is to integrate financing solutions to other platforms, e-shops, even telecom businesses.

When exactly did you launch your product?

SME Finance was established in Vilnius, Lithuania, in 2016.

Tell us about the startup’s business model. How do you monetize your product?

At the moment, SME Finance offers a number of different financing services, including business loans and credit lines, invoice finance, leasing and revenue based financing in partnership with the largest marketplace in Baltics pigu.lt. SME Finance also provides invoice financing or factoring, including classic, reverse, undisclosed, supply chain, and leasing.

In early 2022, the company launched Smart Loan — a new type of loan where the main goal is to simplify and accelerate the credit checking process for companies seeking to borrow up to €30,000.

SME Finance is the leading lending company in the Baltics. We were the first fintech in the Baltics that offered revenue-based financing in partnership with Pigu Group, we are eager to offer tech lending solutions to SMEs and e-retail businesses.

SME Finance’s goal is to reinvent business financing by building best-in-class technology, optimizing processes and offering embedded finance solutions with partners Business model – we created a single platform with a fully digital customer journey, online credit application, onboarding and underwriting based on AI-powered scoring model.

A single platform allows customers to get financing quickly and easily. SME Finance provides all kinds of financing, which is a big advantage for SMEs, because they no longer need to look for lots of partners, they can find all financing/lending solutions on a single platform. The main source of monetization is still lending, but we are also developing other products, such as business analytics and financial insights, pre-limit calculators. SME Finance has all the necessary tools for SMEs.

What are your target markets and consumers? 

To date, we have more than 50% of the market in Lithuania, but we are rapidly increasing market share in Latvia, Estonia, and Finland. In 2023 SME Finance will expand its presence into the Netherlands, Spain and Germany, with further European offices planned.

If the startup has already launched the product, what are the results: metrics, income, or any clear indicators that can be evaluated.

SME Finance has already provided more than €1.3 billion in working capital to over 2,600 growing businesses across Europe. Currently, the robust risk management and therefore a very low NPL (non-performing loan) ratio of just 1%. Moreover, SME Finance’s leading position has been achieved through a strong technology, including innovative AI-powered revenue-based financing (RBF) that shortens and simplifies the business financing process, and introduces unbiased lending criteria.

SME Finance outperforms its local peers’ financial position — from the starting date, the company operates profitably and generated €14 million revenue last year, bringing 30% ROE to our shareholders. While the forecast for the upcoming year is €40+ million.

What about your team? How many people are working in the startup? If you’re looking for new employees, indicate whom exactly.

We have a team of over 160 banking and technology professionals, and we are constantly looking for new talents.

Have you already raised any investments? Provide us with more details on each funding round: the amount, investors, the purpose of the investment.

To date, total funding raised from institutional investors exceeds €200 million, while funding raised from high net-worth individuals via private bonds exceeds €80 million. Together with the ecosystem partner SME Bank, SME Finance manages a €300 million funding portfolio in a single ecosystem.

What’s next? Tell us about your future plans.

We aim at growing not only revenue from the interest, but also scaling-up our daily financing services. We would like to offer more services via partners and more embedded finance solutions, as SME Finance’s tailored services are aimed at solving a particular company’s goals.

We believe that providing a full range of services and support tailored to SME customer’s needs and customizable by them via digital channels is what’s needed in the future. We also would use the tech necessary to get deep enough under the skin of what an SME is actually doing to make a reliable risk assessment without running up costs that make a loan unattractive for both parties. Also, the high level of automation will enable us to price services at levels that are attractive to smaller business owners.